There are small ways in which you can save thousands on your mortgage over its term. Mortgage experts Jorge and Alisa Aragon offer a great idea

Paying your mortgage off the traditional way takes 25 to 30 years and costs about twice – yes, TWICE – the purchase price of your home. But there are some effective ways to pay off your mortgage sooner, build equity faster and save thousands in interest.

When you are searching for a mortgage, you shouldn’t only base your decision on rate. It is important to search for the best mortgage. This is a mortgage that not only provides the best interest rate, but also the one with the best terms and conditions.By understanding mortgage terms and what they mean in dollars and cents, you can save the most money and choose the term that is best suited to your specific needs.

With a closed-term mortgage, you can’t pay off your mortgage before the end of the term without having to pay a penalty.

The pre-payments without penalty clause is one of the conditions that can save you thousands of dollars over the life of your mortgage. This clause allows you to make payments on the principal of your loan, or increase the amount of your periodic payments (monthly, bi-monthly, etc.) without a penalty. If you can afford to pay a little extra, consider accelerated bi-weekly or weekly payments, these are equivalent to making one extra monthly payment per year, which results in substantial savings. Each lender has different programs for pre-payments, which usually vary from 10 to 20 per cent. For example, you can pay any amount within the approved percentage of the original value of your mortgage or increase your periodic payments once a year without paying a penalty.

Many people don’t take advantage of this clause because it is generally difficult to save the extra money to make additional payments.

Here is an easy way to takeadvantage of this benefit – we call it "The Java Factor". This is something that is very easy to follow and can save you thousands of dollars on paying down your mortgage.

Almost everyone buys a cup of java (coffee) – or two – during their work day. When you see the cost of a cup of coffee at Starbucks or any other establishment, you realize that maintaining this habit can be very costly. Even if coffee isn’t your thing, you may be spending a similar amount on drinks and snacks.

Suppose that you spend $5 per day, five days a week in coffee, donuts, chocolates, snacks, etc., this would amount to approximately $108 per month. If you apply that $108 to your monthly mortgage payments, the savings can be considerable.

For example:

In a $100,000 mortgage at a rate of 2.89 per cent and a 25-year amortization, you would reduce the total payment of your mortgage by five years and three months, with savings of $10,850 in interest. For this calculation, we considered that the interest rate did not change during the life of the mortgage.

This calculation would vary case by case but, depending whether you have a pre-payment clause with your mortgage or not, it is important to emphasize that by making a small sacrifice you can have significant long-term savings.

So remember "The Java Factor" next time you are thinking of stopping for a coffee on your way to work – and take a cup of coffee brewed at home instead.

Jorge and Alisa Aragon are mortgage and leasing experts with Dominion Lending Centres Mountain View. They are active members of the Greater Vancouver Home Builders Association. Jorge and Alisa focus on the overall needs and plans of their client and then find the best mortgage to suit their needs.

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